Rakesh Jhunjhunwala‘s charity extends to educating investors on how and why to buy stocks. His & Radhakishan Damani recent purchase of shares of Sterling Holiday Resorts Ltd is a good occasion to understand how and why these master stock investors have deployed their capital.
Radhakishan Damani is to be allotted 21,25,000 shares of Sterling Holiday Resorts Ltd at the price of Rs. 75 per share (Rs. 15.93 crores). Rakesh Jhunjhunwala is to be allotted 12,50,000 shares of Sterling Holiday Resorts Ltd at the price of Rs. 75 per share (Rs. 9.37 crores). The total number of shares to be allotted (including other investors) is 80 lakh shares worth Rs. 60 crores.
In addition, Sterling Holiday Resorts shall allot to Rakesh Jhunjhunwala and Radhakishan Damani (and others) warrants at the price of Rs. 18.75 conferring upon them the option to acquire shares at Rs. 75 each. Ltd at the price of Rs. 75 per share (Rs. 15.93 crores). While Radhakrishna Damani has been allotted 10,00,000 warrants, Rakesh Jhunjhunwala has been allotted 12,50,000 warrants. If the warrants are exercised, Radhakrishna Damani‘s holding in Sterling Holiday Resorts will be 31,25,000 shares constituting 4.733% of the total equity while Rakesh Jhunjhunwala will hold 25,00,000 shares constituting 3.786% of the equity.
Rakesh Jhunjhunwala now explains why he thinks Sterling Holiday Resorts is a great buy.
High Entry Barriers, Low Competition:
Rakesh Jhunjhunwala points out that Sterling Holiday Resorts has 14 resorts in top-notch holiday destinations like Darjeeling, Gangtok, Goa, Kodaikanal (2), Lonavala, Manali, Munnar, Mussoorie, Ooty (2), Puri, Yelagiri and Yercaud.
He is banking on the fact that for a competitor to set up an equivalent network in such holiday destinations will be a very difficult if not impossible task given the steep rise in the real estate prices.
This means that Sterling Holiday Resorts will be virtually immune from new competition.
Rakesh Jhunjhunwala points out that Sterling Holiday Resorts got into deep trouble because it borrowed heavily and could not service the debt adequately owing to the downturn in the economy in 2008-09 and got into serious trouble. However, all that is a matter of the past because Sterling Holiday Resorts has now repaid virtually all of its debt and is virtually debt-free.
Rakesh Jhunjhunwala is very impressed by the fact that Sterling Holiday Resorts has appointed Ramesh Ramanathan (aged 56 years) as its Managing Director. Ramesh Ramanathan is to get a salary of Rs. 75 lakhs apart from a host of perks and stock options. Ramesh Ramanathan has over 33 years of work experience over a range of industries. Ramesh Ramanathan was the Managing Director of Mahindra Holidays & Resorts India Limited, a company setup and successfully managed for a period of 11 ½ years. Ramesh Ramanathan is one of the pioneers in the Holiday Industry in India and was successful in establishing the concept. He was a Group Executive Board Member of the Mahindra Group. Ramesh Ramanathan is also the founder member of the All India Resort Developers Association (AIRDA).
Ramesh Ramanathan will bring all his expertise with Mahindra Holiday Resorts and hopefully be able to give Sterling Holiday Resorts the impetus that it needs to grab market share.
High Growth Opportunity:
Rakesh Jhunjhunwala points out that there are at least one crore couples in India who in the next few years are potential customers of Sterling Holiday Resorts and so there is vast potential for growth. Rakesh Jhunjhunwala feels that as income increases, expenditure on holidays will go up substantially and Sterling Holiday Resorts will be one of the beneficiaries of this boom.
Reasonable Valuations for a niche player:
Sterling Holiday Resorts cannot be valued in terms of PE or Book Value because of the huge losses that it has suffered in the past. However, a comparision with market leader Mahindra Holidays & Resorts India is appropriate. Mahindra Holidays & Resorts is quoting at rich valuations indicating the premium that the market is willing to pay for such niche players.
At the CMP of Rs. 360, Mahindra Holidays & Resorts is quoting at a PE of 31.6 times on the basis of the TTM EPS of Rs. 11.31. The price-to-book is 6.07 times while the EV to EBITDA is 22.79 times.
Mahindra Holidays & Resorts has a market cap of Rs. 3017 crores while the market cap of Sterling Holiday Resorts is only Rs. 491 crores. So, Sterling Holiday Resorts has a lot of catching up to do.
|Sterling Holiday Resorts vs. Peers||Last Price (Rs)||MCap. (Rs in Cr.)||P/BV(x)||P/E(x) TTM||Div. Yield (%)|
Sterling Holiday Resorts (India) Ltd
TajGVK Hotels & Resorts Ltd
Oriental Hotels Ltd
Bhagwati Banquets & Hotels Ltd
Suave Hotels Ltd
Royal Orchid Hotels Ltd
Mahindra Holidays & Resorts India Ltd
If Ramesh Ramanathan does manage to turn Sterling Holiday Resorts into a profitable venture, its valuations can really soar, and if it comes even half-way to Mahindra Holidays & Resorts‘s market capitalization, it will become a multi-bagger is Rakesh Jhunjhunwala‘s calculation (see also Rakesh Jhunjhunwala’s New Stock Pick: Sterling Holiday Resorts).